While you spring clean your house, remember to tidy your finances
By The clocks have changed and we’re feeling spring in the air here in Lexington, Kentucky, which means it’s almost time for horse racing, cookouts, and the big tournament (you know the one). But it’s also time to put away winter clothes, bring out the patio furniture, and purge all of that stuff you stashed in the garage over the holidays. That’s right — spring cleaning is upon us.
Just as important as tidying up your home is taking a closer look at your finances. We’re between the rush of the holidays and the excitement of summer break, so now is the perfect time to make sure your money is doing its job in those hard-to-reach places.
Let’s take a look at how you can use this season to declutter your financial life and start the year fresh, along with the most common questions that clients have about each.
Organize Your Financial Records
With the tax deadline looming, you’ve probably spent a lot of time gathering your banking statements, investment account statements, bills, tax documents — all of the yearly reports that you need to file your taxes. Develop a system that allows for easy access and ensures you have all the necessary documentation in one place. You’ll thank yourself this time next year.
Question: How long do I need to keep these documents?
Paper documents these days are dinosaurs. Any account statements from a financial institution like us or your bank, you should be able to pull those digitally anytime should you need access down the road. Check to see if you can receive them digitally — it may even save you money in fees. All of our clients also have access to eMoney, which includes the Vault. Any documents you want to save, you can scan and drag into the eMoney Vault, and they will stay there forever.
Clean Up Your Accounts
Over the years, many of us end up with financial accounts spread across multiple institutions. This makes sense as you’ve been rate shopping or looking for the lowest fees. But sometimes it can make your financial house feel disorganized and cluttered. Now is a good time to consider consolidating some of those accounts for easier access, better transparency, and a clearer understanding of your financial goals.
Question: I’ve still got an old 401(k) from a job I left years ago. Should I continue to let it sit there?
At its core, there’s nothing wrong with letting an old 401(k) sit until you’ve retired. But let us work with you and review your options. It may make sense to roll that money over into an IRA, or even into your 401(k) with your current employer. You might feel better having one less account to pay attention to.
Refresh Your Financial Goals
Hopefully, you’re spending time each December or January setting some financial goals for the upcoming year. Maybe it’s saving for a big purchase, getting estate planning documents in order, or paying off a chunk of debt. Take this opportunity to reflect on those goals. Are you on track? Do they still align with your current circumstances, or has the first quarter brought about big changes? Make the necessary adjustments and develop a plan to help you stay on course.
Question: My tax bill was a huge surprise this year and forced me to dip into savings. How can I lower my burden next year?
The beauty of doing a financial spring cleaning is that it’s early enough to make some adjustments to help you potentially save on your taxes next year. There are a few options, but a popular one that we can talk more about is contributing to a traditional IRA. The contribution may be tax-deductible to help you save on taxes. The deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. Future withdrawals will be taxed at the owner’s ordinary income tax rate in the year of the withdrawal. Depending on the owner’s age, the withdrawal may also be subject to a 10% early distribution penalty.
Right-size Your Insurance
You’ve probably gotten pretty used to your employer’s group life insurance plan. You’ve likely paid into it for years, not thinking twice.
But often once people hit the age of 50, as long as they are in relatively good health, the group life insurance their employer offers starts getting more expensive than what they can find in the open market. Let us look and see exactly what you’re paying for your coverage, illustrate a replacement policy or equivalent policy, and see if we can save you some money.
Question: My employer’s group life insurance tops out at $500,000, but I feel like I need more than that. How can I make sure I’m properly covered?
If you’re not finding enough coverage in your group coverage, we can help you look for a whole new plan on the market, or we can find additional insurance on top of what you already have to make sure that your family is covered in case the unthinkable happens.
Optimize Your Investments
Family Financial Partners’ clients know that we’re actively managing your investments to try and get the most out of your money. But if you are a DIY investor on the side, this may be a good time to review your holdings and ensure that your investments align with your risk tolerance and long-term goals.
Remember, periodic and consistent reviews and adjustments are essential for staying on track for financial success.
Question: I’m nearing the end of my career, and the market swings of the last couple of years are making me nervous about how to time my retirement.
Choosing when to retire is an important decision to make and one that we don’t take lightly. But we believe that the idea of timing the market is mostly a myth. The best thing you can do right now is make a retirement plan. Consider downloading our free retirement workbook to get started now.
Article by Kyrk Davis, Wealth Advisor at Family Financial Partners — a financial services firm in Lexington, Kentucky.